What is the Annual Investment Allowance (AIA)?

Following the recent budget, businesses can now invest up to £500,000 as their annual investment allowance (AIA), up until 31 December 2015. It will then return to a limit of £25,000.

What is the AIA?

The AIA is a type of capital allowance. It offers tax relief at 100% on expenditure on plant and machinery (which qualifies) in the year of purchase. The maximum you can deduct from your taxable profits is increasing from £250,000 to £500,000, up until the end of next year.

As the temporarily increased limit up until April 2014 has been £250,000, any investments spanning the two differing allowance limits will involve pro rata calculations to determine the blended limit across the period of investment.

Businesses can claim the AIA on their expenditure on plant or machinery. This investment can extend well beyond manufacturing plant and machinery or new IT. It could include, for example, upgrading air conditioning, heating and ventilation equipment that has been required by many of our recent clients.

Who can apply for AIA?

Any business entity can claim providing their activity satisfies one of these criteria: trading; commercial property letting; office or employment; or leasing. The only business structures not eligible for the AIA are mixed partnerships and trustees.

Does the size of my business matter?

Current law allows you to take advantage of this government measure regardless of the size of the business. The allowance can be used for both general and ‘special rate’ plant and machinery. There are exceptions, the main one relating to the expenditure on cars (Section 38B of the Capital Allowances Act 2001).

The AIA is a 100% upfront allowance. When businesses spend more than the annual limits any additional qualifying expenditure will attract relief under the normal capital allowances regime.